Hong Kong's global competitiveness ascending over 20 years

HONG KONG - Johnny Ng, the first post-doctorate student from Hong Kong at Tsinghua University, could not understand Mandarin two decades ago and did not expect his business to thrive on the Chinese mainland.

Ng, chairman of Hong Kong United Youth Association, came to Beijing in 2004 for study, and unexpectedly found technology professionals who lent support to his company Titanium Group, which specializes in facial recognition systems. Years later, his products are widely used on the mainland.

His experience offers an example of closer ties between Hong Kong and the mainland, with Hong Kong entrepreneurs finding business opportunities on the mainland and helping sustain Hong Kong's global competitiveness.

July 1 marks the 20th anniversary of Hong Kong's return from British rule and the establishment of the Hong Kong Special Administrative Region (HKSAR).

The past two decades witnessed the ascent of Hong Kong's global competitiveness, supported by a sound business environment, solid infrastructure, and a complementary Chinese mainland market.

The HKSAR was rated the most competitive among 63 economies, followed by Switzerland, Singapore and the United States, the second year in a row to occupy the top spot, according to the International Institute for Management Development (IMD) World Competitiveness Yearbook 2017.

Hong Kong ranked third on the IMD World Competitiveness scoreboard in 1997, trailing the United States and Singapore.

Among the four competitiveness factors in IMD World Competitiveness Yearbook 2017, Hong Kong ranked top globally in "government efficiency" and "business efficiency," according to the HKSAR government.

The indicators that stood out among the most improved economies were related to government and business efficiency as well as productivity, and these economies "have maintained a business-friendly environment that encourages openness and productivity," said Arturo Bris, director of the IMD World Competitiveness Center.

The view was echoed by Xiao Geng, professor at the University of Hong Kong, who said that the competitiveness of Hong Kong mainly came from its open and free market tradition and institutions.

"Although costs of production factors such as talent and land are very expensive, the transaction costs of making trade and finance deals are low, so that Hong Kong is becoming a global hub for trade, investment and finance," he said.

The steady rise of Hong Kong's global competitiveness was reflected in other leading rankings including the Global Competitiveness Index released by the World Economic Forum (WEF).

Ranked in the top 10 for the fifth consecutive year, Hong Kong achieved a strong and consistent performance, the WEF said in its Global Competitiveness Report 2016-2017.

The WEF cited the highly sophisticated and trustworthy financial sector, competitive and open market, as well as the flexible and efficient labor market as key factors supporting Hong Kong's high ranking.

"Behind the highly efficient trade and financial markets is Hong Kong's solid public infrastructure, both hard and soft, including high-density urban housing and transport systems, independent and robust legal and financial institutions, stable currency regime, and clean and efficient civil services," said Xiao, also president of the Hong Kong Institution for International Finance.

Hong Kong has been ranked among the world's most business-friendly economies since the World Bank began to release its Doing Business report in 2005. The Doing Business 2017 report ranked Hong Kong fourth for ease of doing business among 190 economies, compared to fifth in the previous report, said Klaus Koch-Saldarriaga, member of the World Bank's Doing Business team.

The Doing Business report finds that Hong Kong has created a better business environment in the past decade. Since 2008, Hong Kong has implemented 21 reforms to make it easier to do business, which translated into substantive improvements in the local business regulatory framework, he said.

HONG KONG-MAINLAND TOGETHER

The rise of Hong Kong's global competitiveness was in tandem with the reform and opening up of the mainland, whose ranking on the IMD World Competitiveness Yearbook climbed from 27 in 1997 to 25 in 2016 and jumped to 18 in 2017.

The remarkable improvement of the Chinese mainland in the ranking can be traced to its dedication to international trade, and "this continues to drive the economy and the improvement in government and business efficiency," said Bris of the IMD World Competitiveness Center.

Hong Kong is not alone in its competitiveness stamina, as it is partly a reflection of Chinese mainland's ascent in global competitiveness over the last two decades, said Wendy Liu, head of Nomura China equity research.

Under the "one country, two systems," Hong Kong is not only able to preserve the free market ecosystem but also deepen its economic integration with the mainland, particularly with the neighboring Guangdong Province, Xiao said.

"The complementary cities of Shenzhen as the mainland's top innovation center, Guangzhou as its major international and domestic trade hub, and Foshan and Dongguan as its key manufacturing bases, have helped Hong Kong deepen its financial markets for cross-border transactions, as demonstrated by the successful launch of a number of cross-border bridging services for trading of stocks and bonds in Hong Kong," Xiao said.

"Unlike our parents' generation who made profits by setting up plants on the mainland, young people in Hong Kong can tap the career development potential given by opportunities like the Belt and Road Initiative and the construction of Guangdong-Hong Kong-Macao Greater Bay Area," Ng said.

Challenges, hopes ahead

The HKSAR is not without its challenges to keep its global competitiveness, including innovation bottlenecks and high living costs.

"The challenge for Hong Kong is to evolve from one of the world's foremost financial hubs to become an innovative powerhouse," noted the WEF's Global Competitiveness Report 2016-2017.

Many say a top challenge facing Hong Kong is the lack of property supply. Hong Kong's low taxation, efficient governance, safe and clean environment and beautiful nature are appealing to talents and investors, but many have been held back by the high costs for housing and private education, said Liu.

Xiao believes that the main challenge for Hong Kong in the future is keeping its competitive institutions while relaxing a number of its physical and social bottlenecks and constraints in land, property and talents.

"Despite marked improvements, there are still areas to tackle in order to ease the business climate for local entrepreneurs in Hong Kong and achieve long-term sustainability of very good results, as there is room for improvement in the areas of registering property, trading across borders and resolving insolvency," said Koch-Saldarriaga of the World Bank.

However, Hong Kong will be able to maintain its global competitiveness since the main factors behind its success, including strong commitment of the central government to the "one country, two systems," deep and expanding mainland markets, and resilient market systems, have not changed, Xiao said.

"If Hong Kong entrepreneurs can fully tap the huge market and technology potential in the mainland, that will greatly help Hong Kong to keep its global competitiveness," Ng said.